How To Play In The 'Life Is Unfair' Game

As I walked through the rooms of Musée Picasso exhibiting protest art that bloomed during the Spanish Civil War, Picasso’s "Guernica," painted in France in 1937, became the ultimate metaphor for the tragedy of innocents. No place to hide from the bombs of fascists exploding in streets. The concept of an “open city” didn’t get much attention then.

Later, I sat through a film focused on a covey of doves, hopelessly enmeshed in a trap of steel wires. They suffered silently, these exquisite, white-feathered beauties. One-by-one, they ceased frantic straining against the cutting steel wiring. Soon, they lay prone, eyes blinking intermittently, half shut. Their yellow mandibles quivered in fright, then resignation, waiting for the reckoned finality.

Sadly, the world is filled with families experiencing such unrelenting, deadening entrapment. Walls are readied to rise up against them. Whatever it takes. Trump’s $17 billion folly, for example.

I know about “unfair.” My first “job” after graduation was as a second lieutenant fighting in North Korea during 1952 – 1953. Truman called it a “police action,” but we dog-faced soldiers knew better, under-clothed and under-booted, subjected to the arctic Korean climate. There was no television then, so politicians could tamp down the defense budget to look prudent. Nobody knew that the country was failing us. It became a dull ache in the pit of my stomach that lasted and lasted.

I grew up during the Great Depression, but with a snappy throwing arm from third base, I was a happy-go-lucky kid. Got a great education in the East Bronx, and after that City College was free if you passed their test. No interview required. I couldn’t afford a new suit until I was a junior, but so what?

Still, once in a while, I’d stroll slowly on Central Park South and look up at the double-windowed duplexes, never expecting, myself, to be looking down on the Central Park rink where I figure skated, self-taught, nothing too fancy.

Growing up poor is a great advantage if you can break out. I still frame what I purchase in terms of what a new or good used car goes for. When my tailor asks $8,000 for dinner clothes, I tell him “I can buy a good used car for that price. Schmeiss it in half or I’m walking out the door.” This works late spring because the shop doesn’t want to carry inventory through the summer.

What does all this have to do with Le Grande Marché? Actually, a lot. Unless you’re a trader, you need good entry points on whatever you buy. Be disciplined, not a crowd follower. Aim to buy the biggest and best properties before they’re priced for perfection. Don’t assume the guy on other end of the phone is smarter than you.

Apple is a great example. It has never sold above the market’s multiplier. It carried with it sufficient analytical disbelief that cellphone revenues would continue their trajectory. In the early days of cellphone technology, even the industry’s participants held that the saturation level for phone usage was under 10% of the population.

When Xerox introduced it’s 914 copier everyone thought the price per copy was too high, but page rates soon came down. The 914 was housed on our research department’s floor. I clocked secretaries coming from every floor in the 12-story building with papers for copying. The “overhead” partner finally locked down the machine after he clocked its usage.

The magic of technological leverage forever is a prominent theme. Maybe the only productive play now. Currently, it’s with Alphabet and Facebook, but I remember when the head man at Motorola told me the 500,000-square-foot semiconductor facility just built in Phoenix would pay for itself in 3 years (he was on the money). This was in 1963.

The armchair investor should allocate at least 20% of assets to the NASDAQ 100 Index. This captures all of the technology sector including Apple. You don’t gotta do the grunt work, reading research reports ad nauseam or note that 42 of 46 analysts thought Facebook walked on water.

Who’s to take you out of NASDAQ when it waxes too pricey? Nobody’s there. You rely on historical precedent. Maybe I should say hysterical yardsticks like 3 times the S&P 500 Index’s price-earnings ratio. Looking at a long-term chart (30 years) on NASDAQ 100 you’d think twice before ever plunging in. From its low in 1995 at 100 NASDAQ soared to over 1,200 by 2000. Then, it succumbed as low as 200 in 2003, thus creating an eye-arresting gigantic sombrero formation. Chartists label this as the most terrifying of all slippery slopes. Nobody’s there to blow a whistle.

Apple deserves to be capitalized at a trillion bucks, but think of all the market’s past numero unos that succumbed. In 2001, General Electric was number one with a $415 billion market capitalization. American International Group was number 7, but soon needed a huge government bailout to stay alive after foolishly guaranteeing trillions in credit swaps.

But stocks like Microsoft clung to its number 2 position. Citigroup lost primacy among the top 25 stocks as did Walmart and Pfizer. Philip Morris fell off the list while Facebook showed its face along with Google. The top 25 comprised of tech houses, banks, pharmaceuticals and energy names. Berkshire Hathaway forged its way up the ladder.

After all, consistency does pay off. Go back to the 1972 days of the Nifty Fifty - a humbling experience. Half the top 10 turned into basket cases. I’m talking about Eastman Kodak, Avon Products, Sears, Roebuck, Xerox and Polaroid. Avon sold at 65 times earnings and ‘Roid at 90 times its numbers, nearly a 400% premium over the market.

Some conclusions: No safety forever in big-cap paper. Don’t pay a premium over the S&P 500 of more than 100%. You do need to understand leading indicators for the financials, energy and tech houses like Apple, Microsoft, Alphabet and Facebook. But Amazon as yet is inscrutable, and Facebook has now moved into a zone of uncertainty. Know what you don’t know.

What am I most comfortable with currently? Consider Microsoft, Citigroup, Alphabet, Apple, Morgan Stanley, Boeing, General Motors and AT&T. All definable. The MLP Enterprise Products Partners is comparatively a modestly leveraged pipeline throughput play, yielding over 6%. So far it acts better than AT&T, which yields 6%, too, but be patient.

This cycle belongs to the top 0.1% honchos. The art market is their playground, the most pricey asset sector bar none. It shows no signs of toppyness. Unemployment is down even for participants in the workforce lacking a high school diploma. But, the gap between haves and have-nots shows no sign of contraction at hand. Maybe, it’s pushed out for much longer than economists extrapolate.

Think of the World War II cartoon by Bill Mauldin in Stars and Stripes. A pair of generals are looking out on a grand vista of snowy mountains. One fatso cracks to the other: “I wonder if there’s a comparable view for enlisted men.”